How to Transfer Rental Property Into a Holding Company in Canada

I get this question a lot, and I see it regularly on Reddit:
"Can I transfer my rental property into a holding company for tax reasons?"

Let’s break it down using a real discussion from Reddit and tie it to what CRA actually says, because while the idea sounds good in theory, it comes with some real tax baggage.

The Reddit Post

This thread on r/PersonalFinanceCanada opens with someone asking whether they can move their rental into a corporation and then sell the shares of that corp in the future.

The reasoning:

• Future liability protection
• Potential for tax planning
• Maybe even cashing in on the lifetime capital gains exemption (LCGE)

But commenters quickly stepped in with some important corrections.

One user responded:

“You don’t get the LCGE when selling rental property shares because passive rental income doesn’t qualify as active business income. The CRA sees that rental income as passive, not active.”

Another chimed in:

“Also, you can’t just ‘move’ a property into a company. It’s a disposition for tax purposes, meaning CRA treats it like you sold it at fair market value. You’d owe capital gains on the transfer unless you structure it carefully.”

This is the stuff most people miss.

What CRA Says About Transferring Property to a Corporation

When you transfer personally owned property into a corporation, CRA considers it a deemed disposition at fair market value. That triggers capital gains on the difference between:

• The current fair market value
• Your original cost base

So if your rental has appreciated significantly, that tax bill could be big.

Unless...
You use Section 85 of the Income Tax Act, often referred to as a "Section 85 rollover."

This provision allows you to transfer eligible assets into a corporation on a tax-deferred basis by filing an election and agreeing on an elected transfer value (usually at cost or slightly higher).

But the catch is this:
You need to file the proper paperwork (Form T2057), draft legal documents, and often work with an accountant and lawyer to structure it correctly.

CRA Reference:

‍
Further Reading:
Section 85 Rollover – Basic Rules

What’s the Point of Moving a Rental Into a Corporation

Here’s where people often get ahead of themselves. The most common reasons clients bring this up:

• Liability protection: They think a corporation shields them from lawsuits. This is partly true, but not absolute. You’ll still need insurance.
• Tax deferral: Rental income inside a corp is taxed differently than personal income. But unless you’re actively reinvesting profits, it might not help.
• Estate planning or future sale: Hoping to sell shares instead of property and save on tax.

But as Reddit points out, rental income inside a corp is considered passive. That means:

• It’s taxed at a higher rate (around 50 percent)
• It doesn’t qualify for the small business deduction
• It does not qualify for the LCGE on sale of shares

So unless you’re running something like a hotel or short-term rental business with employees, CRA doesn’t treat it as “active business income.”

Should You Bother?

Transferring a rental property into a corporation can be part of a broader tax strategy, but it’s not something to do casually.

You’ll want to consider:

• Will the capital gains tax today outweigh the long-term benefit?
• Do you really need the liability protection, or is insurance enough?
• Are you planning to grow your rental portfolio significantly?
• Will you keep profits in the corp and reinvest, or take them out personally (which triggers tax anyway)?

This is a situation where you shouldn’t wing it. You’ll want:

• A proper Section 85 rollover agreement
• Support from a CPA to prepare and file the forms
• A lawyer to review or draft the corporate transfer docs

Final Take

Yes, you can transfer your rental into a corporation.
But if you don’t structure it properly, you’ll trigger tax on the full value of the property, just like you sold it to yourself.

The Section 85 rollover is the tool CRA gives us to defer that tax, but it comes with strict rules. And even once it’s inside the corporation, don’t expect huge tax savings unless your whole strategy is built out.

If you're in Ottawa or Ontario and thinking about moving your property into a corp, talk to someone who’s done this before. The upfront costs and paperwork can be worth it, but only if you understand the trade-offs.

Resources and References

• Reddit: Transferring Property to a Corporation
• CRA IT-291R3 – Subsection 85(1) Transfer
• Section 85 Rollover Summary – Wolters Kluwer

--

This is not legally binding tax advice. This is educational analysis. Say hello if you need help.

hello@taxesmadesimple.ca

WhatsApp - 613.600.4194

‍

‍

‍